Post-termination restrictive covenants normally found in contracts of employment, such as those which seek to prevent solicitation of customers, clients, suppliers, other employees, or general competition for a defined period after termination, in order to protect the employer’s confidential information, customer connections, its goodwill and the stability of its workforce.
Why have post-termination restrictive covenants?
The main reasons are around:
- If properly drafted and reasonable, can limit the employee’s conduct and prevent them from damaging the former employer’s business.
- Might deter employees from joining competitors.
- Might deter potential new employers, who face the risk that the restrictions will be enforced by the courts, and may themselves be vulnerable to certain claims, such as inducing a breach of contract, or unlawful means conspiracy.
How are they enforced by the court?
Usually, court proceedings are not necessary as the employer normally would write you a letter before action reminding you of your obligations and your agreement to abide by the restrictions. If the employer suspects you have breached your restrictions it may request ‘undertakings’ (promises) from you to provide full details of any breach and ongoing compliance. However, in some instances the employer may decide to issue proceedings against you – which should not be taken lightly as the consequences of such could be financially grave. However if your employer takes legal action then the court usually applies the following key principles in assessing and enforcing post-termination restrictive covenants:
Reasonableness. Post-termination restraints are enforceable if they are reasonable, having regard to the interests of the parties and the public interest.
Legitimate interest. To be enforceable, a restrictive covenant must be designed to protect a legitimate proprietary interest of the employer for which the restraint is reasonably necessary. Legitimate interests include an employer’s trade connections with customers or suppliers, confidential information and maintaining the stability of the workforce.
Special treatment for employment covenants. Restrictive covenants in employment contracts are generally viewed more strictly than those in commercial contracts, such as those between a seller and a buyer. They are usually less likely to be regarded as reasonable, because of the inequality of bargaining positions between employer and employee.
Preventing competition must not be an end in itself. Restrictive covenants having the sole aim of preventing competition are never upheld by the court.
Restrictions must be no wider than necessary. For any covenant in restraint of trade to be treated as reasonable in the interests of the parties.
Received a letter before action or one threating you are in breach?
You should seek urgent advice and usually it is best to respond as a failure to do so may result in the employer taking legal proceedings which can have significant financial consequences. We can help prepare your response and deal with any claim should it ensue. We can also assess the enforceability of the restrictions and whether you are in breach. From experience positively engaging with the employer can reap a swift resolution.
If you have any concerns over your restrictions or have received a letter from your employer regarding a potential breach or a claim and are unsure of your next steps please contact our specialist employment solicitors for a confidential and no obligation discussion on
0203 669 2216 or email email@example.com